Understanding Climate Risk

Science, policy and decision-making

cost of abatement schemes

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Yesterday The Age published an estimate of the cost of greenhouse gas abatement programs detailing spending over the past decade (Climate cash goes up in smoke, Mark Davis and Lenore Taylor). In the online version, they haven’t included the table of costs, which I have reproduced here. Without knowing exactly how they cost per tonne of CO2 abated, it’s difficult to say anything with any great confidence, but the comparison between cheap and expensive programs is interesting.

The authors of the report benchmark these costs against a carbon price, which would be around $20 to $25 per tonne. They estimate that by 2020, these programs would deliver a 0.5% cut on 2000 emissions, one tenth of the current 5% target, which is itself miniscule in proportion to the risk we face from climate change.

Program Total Cost (million) Cost per tonne CO2 abated
Incandescent light bulb phase out $10.2 m $0.50
Greenhouse intensive water heater phase out $12 $0.50
Companies required to find energy savings $37.9 <$1
Businesses requited to monitor and reduce emissions $31.6 $2.40
New energy emission standards for buildings & appliances $71.1 $6
Private sectors grants for emission reductions projects $132 $7
Cities for climate protection $203 $10
Insulation rebates for landlords $20 $33
Solar hot water rebate $370 $34
Small grants for businesses and communities $26.9 $34
Solar and energy efficiency trials in cities $100 $66
Green loans $46 $120
Household insulation $2,500 $172
Solar panel rebates $1,000 $300
National solar schools $159.1 $335
Grants to replace diesel electricity generation in remote areas $350 $120–$340
Ethanol and biodiesel subsidies $567.1 $160–$690
Total Spending $5,600  
Weighted average abatement cost   $168

Sources: ANAO, Australia Institute, Global Subsidies Initiative, Budget Papers, Government Publications, Age Estimates

Cost effective programs are light bulb and water heater replacement, energy audits and reductions, private sector grants and cities for climate protection. These are public costs, so will not include private costs, so aren’t the full economic story. There will be a positive return on a lot of efficiency programs, so in terms of private costs there may be an opportunity cost in investing in that in comparison with other investment, or in upfront capital costs. Often if the opportunity cost is supported by government – similar to how funding whole farm plans leads to more sustainable agriculture – the private and social returns become quite attractive.

Mid-range programs are insulation, solar hot water, small grants and trials. I can’t quite see why the landlords rebate and household insulation are so different – the household one seems quite high. The benefits of a good refit should be much higher in CO2 abated over its life. There are also corollary benefits if peak energy is reduced (reducing the cost to whole energy supply system) and there is a social benefit in terms of comfort. It’s worth investing in mid range options at around this cost if they have reasonable side benefits and/or contribute to community-based, institutional or technical learning.

The expensive options are green loans, remote area diesel refit (there may be other good reasons  for wanting to do this, though), solar panels and solar schools, and ethanol and biodiesel subsidies. These skew the total spending of $5.6 billion to $168 per tonne of CO2. This just demonstrates the folly of taking a piecemeal approach to a systemic problem. If the same reductions had been achieved at $25 per tonne, the total bill would be about $830 million dollars, or for $5.6 billion, 6.7 times as much (a bit over 3% cuts by 2020) may have been achieved.

As Andrew Macintosh from ANU said, it would be good if these programs were audited properly. The benefits of knowing program costs, abatement costs and impact in terms of total CO2 abated are important information for developing a market for greenhouse gases. This isn’t the same as having a formal price – there is already an informal CO2 market with a report by Vivid Economics for the Climate Institute estimating a shadow price for Australia of US$1.70 per tonne CO2. The most important economic goal for climate policy is not to be as cheap as possible, or to necessarily get the biggest cuts (through that is important) – the key goal is to negotiate the transformation between seeing greenhouse gas abatement/sequestration as a cost to where it has a value. That is, the benefits of a low carbon economy are seen as so necessary, that there is a price embedded in the economy to see that happen. Competition within a market to deliver those benefits, driving innovation and development is the goal. China is adopting this type of paradigm as one of the incentives for the future development of their economy. This has happened in the past with the transition from slavery to paid work, and in the introduction of public health (the lack thereof for Aboriginal people shows the structural racism embedded in the economy and policy).

One of the problems with current economic thinking is that the economic baseline is assumed to be a world without climate change. We are still fixated on how the economy would perform if the historical climate went on forever. Forget that – future economic performance has a truckload of climate damages written into it. Australia is probably already on the loss side of the ledger (would like to see a formal assessment done). The costs of recent fires, floods and other events that have been enhanced by a changing climate are probably outweighing the benefits of warmer and drier conditions that are being seen in some areas. It’s too late to recover these costs, but they demonstrate that we ain’t seen nothin’ yet.

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Written by Roger Jones

February 16, 2011 at 9:35 am

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